Materials Management (MM) Organizational Structure EGN 5620 Enterprise Systems Configuration Fall, 2011

MM Organizational Structure Theories & Concepts EGN 5620 Enterprise Systems Configuration Fall, 2011

Enterprise organizational structure Organizational Structure, Definition ◦The relationship of intra/inter elements of an enterprise system ◦The structure is shaped by company’s  Strategy (e.g. operation mode),  Competency, and  Capacity.

Enterprise organizational structure Define a structure for each of the 4 enterprise elements: ◦Resources ◦Work ◦Decision ◦Information

Organizational structure – resources (1) Resource types ◦Human resource (capital) ◦Material ◦Machine ◦Tools ◦Equipment ◦Facility ◦Utilities ◦Capital

Organizational structure – human resource (2) Span of control ◦Depending on planning, communicating, training, and execution/control tasks ◦Classically ranged from 3-7 subordinates ◦The use of IT/IS changes the landscape. Major structure types ◦Functional ◦Project ◦Matrix

Organizational structure – human resource (3) Generic organization hierarchy ◦Corporate ◦Company ◦Division ◦Factory (plant) ◦Department ◦Section ◦Group Unit structure ◦Head ◦Associate head ◦Executive assistant ◦Support staff ◦Members

Organizational structure – human resource (4) In support for the business decisions below: ◦Strategic decision ◦Tactic decision ◦Operation decision In support for financial accountabilities (profit centers vs. cost centers) ◦By default, every organization unit is a cost center with various cost accounts ◦Profit centers consider both sales/revenues ◦Cost centers propose (and operate) under budgets ◦Trends: push profit center designation down the organization hierarchy

Enterprise organizational structure Work structure ◦Generic work hierarchy  Program (not a work order)  Project  Deliverable item  Task  Sub-task  Operation  Step ◦Work constraints  Hierarchical (managerial)  Lateral (technical)

Enterprise organizational structure Decision structure ◦ Decision hierarchy  Strategic  Tactic  Operational ◦Business processes are nested with work and decision activities. They are thus based on human resource and work structure designs

Enterprise organizational structure Information structure ◦Business knowledge  Organized by: ◦ Operation type and ◦ Business process ◦Engineering data  Organized by: ◦ Product type and ◦ Process type ◦Production data  Organized by ◦ work order

MM Organizational Structure SAP Implementation EGN 5620 Enterprise Systems Configuration Fall, 2011 MM Organizational Structure SAP Implementation EGN 5620 Enterprise Systems Configuration Fall, 2011

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.13 MM Organizational Structure Related Topics MM and organizational data MM and purchasing (SAP R/3) Organizational data & structures Organizational relationships Warehouse management

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.14 Business Process Integration FI MM SD Org Data Rules FI MM SD Master Data FI MM SD FISD MM

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.15 MM Organizational Data MM Org Data

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.16 Organizational Data A hierarchy in which the organizational units in an enterprise are arranged according to tasks and functions Are static data and are rarely changed The definition of organization units is a fundamental step; it is a critical factor in how the company will be structured and run.

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.17 Client Company Chart of Accounts Company Code Fiscal Year Variant Credit Control Area Organizational Structure Controlling Area

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.18 SAP Org Structure ◦Client ◦Company ◦Chart of accounts ◦Company code ◦Credit control area ◦Fiscal year variant ◦Cost centers

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.19 Standard Hierarchy for Cost Center An organizational unit that serves to refine and focus a managerial accounting and reporting sub-system Each standard hierarchy is attached to the appropriate Controlling Area All cost centers (groups) of interest must be entered in the Standard Hierarchy A mapping of responsibility to individual managers and cost centers facilitates expense. ◦Collection ◦Tracking ◦Reporting

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.20 Cost Center Groups Logical groupings of cost centers in the standard hierarchy to establish accountability and responsibility for one or more cost centers Facilitates reporting, planning, and allocating costs at a more aggregated level

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.21 Cost Centers Designation Units that are distinguished, for example, by area of responsibility, location, or type of activity ◦Copy center ◦Security department ◦Maintenance department One or more value-added activities are performed within each cost center Can be permanent or temporary (e.g., internal order)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.22 Cost Centers (continued) Operates as a collector and assignor of responsibility for expenditures A way to identify and track where costs are incurred for evaluation purposes

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.23 Profit Centers primary revenue collection objects in the system posted to all balance sheet postings can be attributed by cost centers assigned to a single controlling area and a single company code grouped together into a hierarchy to represent the organization structure for analysis of income versus expenditure for different parts of a organization Some organizations don’t have profit centers

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.24 SAP MM Organizational Structure Plant Valuation Area Storage Locations Shipping Point Purchasing Organizations Purchasing Groups

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.25 Company C001 Plant P001 Storage Loc. 10 Warehouse 1 Aisle 1 Rack 1 Aisle 2 Rack 1 Aisle 3 Storage Loc. 20 Plant P002 Storage Loc. 30 Warehouse 1 Aisle 1 Rack 1 ABC123 Aisle 2 Storage Loc. 40 Organization structure (Plant) - inventory vs. warehouse mgt. Inventory Management (MM) Warehouse Management (WM) Company Code Plant Storage Loc. Warehouse Aisle Storage Rack Quantity

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.26 Plant Lowest valuation area Organizational level where Material Requirements (MRP) runs Generally used to describe a production site, a distribution center or centralized warehouse May be a physical or logical unit

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.27 Valuation Area The valuation area determines at which level a material is valuated (inventory value is established) SAP R/3 allows valuation at the company code or plant level, but recommends valuation area be set at the plant level

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.28 Storage Location Subdivision of a plant Where materials are managed (inventory management) ◦Raw Materials ◦Maintenance, Repair, and Other (MRO) ◦Finished Products May be a physical or logical unit

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.29 Shipping Point Shipping points are independent organizational entities within which processing and monitoring of the deliveries as well as goods issue is carried out. A delivery is processed by one shipping point only.

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.30 Organizational Relationship Plant/Storage Location Storage Location 20 - Quality Storage Location 10 - Inventory Plant P001

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.31 SAP (Sub)modules in MM (I) 1. Purchasing Management  SAP sub-module that involves the acquisition of goods and services to support the creation of goods and services in the organization  Master data for the purchasing management exists in the (MM) as well as the (FI) modules  It interfaces with the Production Planning (PP), and Quality Management (QM) modules 2. Inventory Management  A SAP sub-module that involves goods movement, material stock and inventory controlling, material documents, & period processing

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.32 SAP Modules using MM (II) Warehouse management ◦A SAP module that focuses on managing materials location in a warehouse ◦No connection with its financial module

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.33 Purchasing Organization Organizational unit responsible for the procurement of materials and services. SAP requires that purchasing organizations be assigned at the plant level A purchasing organization can be assigned to more than one plant A purchasing organization can be assigned to a company code

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.34 Plant/Purchasing Organization (1) One plant – multiple purchasing organizations Purchasing Organization – P002 Purchasing Organization – P001 Plant P001 Organizational Relationships

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.35 Plant/Purchasing Organization (2) Each plant has its own purchasing organization Purchasing Organization – P002 Plant P002 Purchasing Organization – P001 Plant P001 Organizational Relationships (Continued)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.36 Plant/Purchasing Organization (3) One purchasing organization for multiple plants Plant – P002Plant – P001 Purchasing Organization – P001 Organizational Relationships (Continued)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.37 Organizational Relationships (continued) Plant/Purchasing Organization (4) One purchasing organization for multiple company codes Company Code C002 Company Code C001 Purchasing Organization – P001 Plant – P002Plant – P001

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.38 Purchasing Group Responsible for specified purchasing activities Often used to identify individual buyers Used for reporting

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.39 Organizational Relationships Purchasing Organization/Purchasing Group Purchasing Group 002 Purchasing Group 001 Purchasing Organization – P001

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.40 Organizational Structure Purchasing Organization – P001 Company Code C001 Storage Location 20 - Quality Storage Location 10 - Inventory Plant P001 Purchasing Group 001

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.41 Warehouse Management Not required for purchasing functionality of SAP R/3 A separate module in the SAP R/3 environment Many functions and elements can be performed outside of the module

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.42 Warehouse Management Elements Receiving, identifying and sorting goods Placing goods into storage bins Taking inventory Monitoring and inspecting goods in storage Preplanning distribution of materials Picking and accumulating orders Packaging, loading and shipping goods

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.43 Company C001 Plant P001 Storage Loc. 10 Warehouse 1 Aisle 1 Rack 1 Aisle 2 Rack 1 Aisle 3 Storage Loc. 20 Plant P002 Storage Loc. 30 Warehouse 1 Aisle 1 Rack 1 ABC123 Aisle 2 Storage Loc. 40 Inventory Management & Warehouse Management Relationships Inventory Management (MM) Warehouse Management (WM) Company Code Plant Storage Loc. Warehouse Aisle Storage Rack Quantity

PEN, Inc. MM Organizational Structure EGN 5620 Enterprise Systems Configuration Fall, 2011 PEN, Inc. MM Organizational Structure EGN 5620 Enterprise Systems Configuration Fall, 2011

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.45 Client 700 Chart of Accounts (Cxxx) Company Code (Cxxx) Fiscal Year Variant (2011) Credit Control Area (Cxxx) Pen Inc. Pen Inc. Organizational Structures At Company code level)

Pen Inc. Organizational Structures Plant (Pxxx) Client (700) Chart of Accounts (Cxxx) Company Code (Cxxx) Fiscal Year Variant (2011) Credit Control Area (Cxxx) Purchasing Organization (Pxxx) Purchasing Group (xxx) Shipping Point (Sxxx) Controlling Area (Cxxx) SL10SL20 Cost Center Standard Hierarchy (PENINCxxx) ADMINxxx A005 A015 A020 A010

Exercises: 60. Create Vendor Master Accounting 61. Create Vendor Master Purchasing Record 62. Create Vendor Master Record Centrally 63. Create Vendor Master Record Centrally 64. Create Vendor Master Record Centrally 69. Create material Master for Trading Goods 70. Create Material Master for Operating Supplies 82. Create Vendor Master Record for Landlord 83. Create Rent Expense Account 84. Create for Invoice Receipt for Rent Expense 85. Display and Review G/L Account Balances and Individual Line Items

Exercises: 86. Display and Review Vendor Account Balances and Individual Line Items 87. Post Payment to Landlord 88. Display and Review G/L and Vendor Account Balances and Individual Line Items 124. Create Shipping Point 201.Create Controlling Area 202. Assign Company Code to Controlling Area 203. Create Cost Center Standard Hierarchy 211. Maintain Cost Center Standard Hierarchy